Warehouse-delivered snacks drive c-store sales and profit margins by capturing more snacking consumers by Lisa White
A lot has been said in recent months about warehouse-delivered snacks (WDS). A broader selection of products for consumers, displayed in permanent locations, is driving higher profit margins and increased sales.
"Direct store delivery (DSD) and warehouse-delivered snacks are both important to the category," says Kit Dietz, owner of Dietz Consulting, based in Huron, OH. "This program’s goal is to balance the snack category to maximize retailers’ profit results and provide consumers with more choices."
Many manufacturers in this category agree. "There is a bit of a controversy that warehouse-delivered snacks are attacking DSD, and that’s not the case," says Dave Onorato, vice president of convenience store sales at Hershey Foods Corporation, based in Hershey, PA. "DSD is an important component of inside sales. We ask for a better informed retailer to see what the net benefit to their store is in terms of profitability so they can understand categories and make good retail decisions based on those learnings."
What warehouse-delivered snacks and DSD have in common is that they both require disciplines in the store, such as keeping items in stock and the end cap fresh. "C-stores are built on instant consumables, and that’s what their customers are looking for. And what better opportunity than the snack food category [to give it to them]?" says Dietz.
The potential for snack sales in c-stores has not been lost on distributors and retailers. In fact, distributors have de-veloped a multi-vendor endcap (MVE) display concept, combining the best-selling national snack brands distributed by the distributor. A study conducted in 2003 revealed that the use of MVEs increased warehouse snack sales from the previous year 63-plus percent and MVE SKUs increased by 114 percent from the year prior. This study involved a total of 186 stores.
The Warehouse Snack Committee, sponsored by AWMA and made up of interested manufacturers, wholesalers and retailers, is conducting a new study of 58 c-stores within a chain that has put in place MVEs. Preliminary results show a 49.9 percent increase in overall sales for warehouse-delivered snack items. There was a 67.8 percent increase in sales of the snack items on the MVE from the same time period versus the prior year.
"This leads consumers to further shop snack foods in c-stores," says Dietz. The preliminary data show that, while average weekly warehouse snack sales were $346 in 2003, sales totaled $519 in 2004 in stores merchandising an MVE. "This is an in-crease of $172 per week per store in the snack category. Warehouse-delivered snacks are delivering 40 percent-plus margins on average, which gives them an average margin increase of $69 per store in gross margin dollars," says Dietz. He adds that this overall growth shows consumers recognize that there are more snacks in the store. The final data from the 58 stores will be released very soon.
The opportunity is there Eby-Brown Company, based in Na-perville, IL, implemented its MVE program about two years ago. "Our efforts are focused on the incremental placement of top selling snack items at retail," says John Scardina, vice president of merchandising. "The goal is to capitalize on the highly impulsive nature of the snack category by placing a variety of key snack items at the front end of the store via the MVE rack."
He adds that Eby-Brown is not looking to remove the in-line placement of these items. "We are, instead, attempting to place the items in a secondary location that will grow the category and, subsequently, the retailer’s gross profits," says Scardina. To date, the company has placed approximately 900 MVE racks at retail and is planning an additional 600 to be placed within six months.
Scott Hill, vice president of North American sales for Link Snacks, Inc., a meat snack manufacturer based in Minong, WI, says the C/SCAPE™ study helped increase the industry’s awareness of how snack foods can become high margin items for c-stores.
"Warehouse-delivered snacks of-fers [a combination of best selling national brands] at high margins, along with merchandising tools, to highlight these items and put them in a primary end cap for better positioning," he says.
Many snack manufacturers have jumped on the bandwagon, realizing that joining with wholesalers is key to building their category. "We identified that helping the wholesale community push snack foods was necessary to help us build business," says Bill Henry, director of national accounts for convenience stores at Kellogg’s, based in Battle Creek, MI.
With the tobacco category situation and fuel margins, the economics of c-stores are changing. "Retailers are looking at store interiors for revenue streams. But it’s necessary to understand snacking occasions and the consumer," Henry says.
Because the majority of c-store snacks are sold by impulse, most consumers’ minds are not made up when they walk in the door. "A majority of consumers are not intent on purchasing a specific snack item. Instead, they’re trying to satisfy some type of hunger, whether with a candy bar, meat snack or bag of nuts. They make their decision after going into the store for another purchase," Henry explains.
Because of increased visibility and product placement, warehouse-delivered snacks, along with MVEs, are "huge wins" for retailers. "This program takes the best of the best of all warehouse-delivered manufacturers and puts it into a merchandise blueprint," says Henry.
This was the impetus for MVEs. "These have the strongest products, the high velocity items," says Greg Kaminski, director of category management for Core-Mark Inter-na-tional, a San Francisco, CA-based distributor. "End caps deserve space in prime store positions because of the volume and profits they produce."
Benefits of WDS Warehouse-delivered snacks come out ahead in most cases, says Henry at Kellogg’s. "Warehouse-delivered snacks provide retailers with an alternative at higher gross margins. It comes down to asking retailers which snack lines they want in high traffic locations; snacks that make a 35 to 40 percent gross margin or 25 to 30 percent gross margin?"
With space allocation at a premium, Kaminski says incorporating warehouse-delivered snacks on permanent displays offers a better utilization of retail shelf space. "Stores can improve profitability by increasing space allocated to warehouse-delivered snacks," he says. "Warehouse-delivered snacks offer a wider range of best selling products at higher profit margins."
Even candy, the second most profitable snack category in c-stores, has seen impressive growth with warehouse-delivered snacks. "Candy re-turns gross margins of more than 40 to 45 percent with warehouse-delivered snacks, and that should be exciting for retailers," says Onorato at Hershey. "In a time when in-store margins have eroded for retailers, warehouse-delivered snacks have given candy a more prominent position in the store."
Warehouse-delivered snacks also have helped bring new products to the shelves quicker for c-stores, says On-orato. "In the area of new store items, 80 percent of the growth from the candy category in the last year is from new items. Warehouse-delivered snacks allow c-stores to get new items on their shelves quicker than in the past," he says.
WDS challenges Despite the many benefits warehouse-delivered snacks offer, there are challenges, as well. One of the hurdles is that distributors are required to invest in a minimum number of racks and inventory the racks with warehouse-delivered snack programs. They also must go to each individual manufacturer and put a plan together for a multi-vendor endcap.
By early next year, however, this may not be the case. "In early 2005, we hope to have more of a turnkey program available for distributors," says George Eversman, business development manager at Dot Foods, based in Mt. Sterling, IL. "We won’t have a rack minimum, so distributors can purchase smaller quantities of rack fixtures." In addition, Dot’s program will have marketing funds consolidated and available to distributors who agree to monitor the racks at retail and comply with the set planogram. "If we are successful in rolling this program out in 2005, it will give distributors efficient access to the racks, planogram, marketing funds and products, allowing more companies to take advantage of the warehouse-delivered snack momentum," says Eversman.
In addition to a rack investment, another challenge proponents of warehouse-delivered snacks have had is getting the message across to retailers that location is key. "Because of the increased profit margins and sales velocity that warehouse-delivered snacks offer, these products should also have prime locations in c-stores. These spots shouldn’t all go to DSD products," says Kaminski.
The bottom line, says Onorato, is that C/SCAPE and the increased at-tention of warehouse-delivered snacks was the impetus for dialog with retailers and snack manufacturers that stressed this segment’s importance. "It really was the beginning of understanding the categories within the store, and not just looking at gross profit, but also true net profit. The true profitability of warehouse-delivered snacks was clearly evidenced as result of the C/SCAPE study," he says.
Onorato emphasizes that the committee tried to get the message to retailers that DSD also is a very important part of retailers’ in-store menus. "Consumers come into a c-store for three or four minutes. If high profit items are in visible areas by the counter or in the front of the store, customers are more apt to pick them up and make a purchase. Warehouse-delivered snacks can help stem the loss of customers to other channels by enabling c-stores to carry a wider variety of brands and get newer items on their shelves quicker," he says.
Henry strongly believes that warehouse-delivered snacks are providing a better alternative for consumers, in addition to offering retailers higher margins and better profit dollars. "Warehouse-delivered snacks won’t eliminate DSD snacks, but they will help provide the opportunity for a better blend of margins and better product assortment," he says.
Lisa White is a food industry writer based in Cary, IL. She is former managing editor of Deli Business magazine.
For more information on warehouse delivered snacks and the Joint Industry Warehouse-Delivered Snack Committee, contact Bob Pignato at 800-482-2962, ext. 642 or robertp@awmanet.org.
